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In a note out to clients, this morning, Oppenheimer top investment strategist Brian Belski reflects on recent discussions he’s had with clients about the state of the market.It provides a nice glimpse into what people are thinking, and why they might be mistaken on some key areas.
Translation: Still nobody is worried about stocks.
Says Belski: 'We believe this topic is the epitome of the current status quo environment. Namely, investors have become so dismissive of a potential double-digit correction that they are ignoring other pitfalls that could occur. To be clear, we are not making any kind of technical call on the S&P 500--far from it. Part of our overall investment process is to incorporate fundamental, macro, price and psychological analysis. The concern is our experience dictates that consensus is rarely correct when a conclusion is so uniformly agreed upon, especially when it comes to the far-reaching agreement of a ―trading range summer‖ and 1,250 market bottom.'
Translation: This is pretty interesting. People still believe that the 'Fed Put' is out there.
Says Belski: 'We believe that investors have become too reliant on monetary policy for stocks to go up. Our view continues to be that stock prices ascend due to fundamentals, not policy'
Translation: Buy the BRICs.
Says Belski: 'There is no doubt in our mind that emerging markets are the secular growth darlings of the next 25-50 years. However, we believe the growth exhibited by many of these areas--including China--will likely encounter a period of maturing expansion some time in the next three to five years.'
Translation: Despite the pullback, people still basically believe that the good times for corporations is continuing, just like it has in recent quarters.
Says Belski: 'We think too many investors are banking on another season of upward earnings surprise. For one thing, the economy has clearly slowed, and rising nondiscretionary costs over the past several months have pressured the consumer which generates the majority of US growth. In addition, earnings revisions for the S&P 500 (for both 2011 and 2012 earnings) are approaching all- time highs.'
Translation: Despite uber-low PEs on huge tech stocks like Microsoft, those stocks are still heading lower.
Says Belski: 'We continue to believe Technology, and Industrials for that matter, are the best fundamentally positioned US sectors in terms of operating performance, valuation and growth for the next three to five years.'
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